lower interest rate http://www.wisebread.com/taxonomy/term/1061/all en-US How to Start Fighting Debt — Today http://www.wisebread.com/how-to-start-fighting-debt-today <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-start-fighting-debt-today" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/free_from_debt.jpg" alt="Freedom from debt" title="Freedom from debt" class="imagecache imagecache-250w" width="250" height="150" /></a> </div> </div> </div> <p>Having once had $20,000 of credit card debt, I know what it feels like to face a Goliath-size stack of bills. Fortunately, I also know the joy of victory over the debt giant. Here&rsquo;s how to wage a successful war against your debts. (See also:&nbsp;<a href="http://www.wisebread.com/when-to-use-savings-to-pay-off-debt">When to Use Savings to Pay Off Debt</a>)</p> <h2>Face the Facts</h2> <p>If you&rsquo;ve ever accidentally cut yourself with a kitchen knife, your first instinct may have been to avoid looking at how bad it was. You just held the cut hand tightly with your good hand, scared to take even a glance.</p> <p>But if you&rsquo;re going to stop the bleeding &mdash; to your hand or your wallet &mdash; you have to take a good, clear look.</p> <p>Financially, that means adding up your debts. Make a list. Who do you owe? How much do you owe to each creditor? And what&rsquo;s the interest rate (APR)?</p> <h2>Stop the Bleeding</h2> <p>Before any forward progress can be made, you need to stop moving backwards. That means committing today to going no further into debt. Two bold steps will help.</p> <p>First, take your credit cards out of your wallet or purse. You don&rsquo;t have to cut them up (or maybe you do). Just get them out of arm&rsquo;s reach so that it&rsquo;s difficult if not impossible to take on more debt.</p> <p>Next, tell someone how much debt you have. Just thinking about taking this step might rearrange your bones. But it&rsquo;ll be one of the most helpful steps you can take. There&rsquo;s something very powerful about getting the news about your debts off of your shoulders alone.</p> <p>Ask this trusted friend to be your encouragement and accountability partner. Invite them to ask you about your progress from time to time. It&rsquo;ll go a long way toward helping you <a href="http://www.mattaboutmoney.com/2011/05/25/tapping-into-the-odd-and-powerful-force-of-momentum/">build and maintain momentum</a> on your journey out of debt.</p> <h2>Fix Your Payments</h2> <p>One of the simplest steps toward accelerated debt repayment is to keep paying the same amount to your creditors each month. You see, if you go no further into debt, then each month your creditors will ask you for a little less.</p> <p>That may seem awfully nice of them, but it isn&rsquo;t kindness. It&rsquo;s math.</p> <p>Your minimum payment is based on a percentage of your balance, so if your balance is going down a little each month, so will your minimum due. Paying this declining minimum is one reason why getting out of debt takes so long.</p> <p>For example, let&rsquo;s say you have a $5,000 credit card balance, and your minimum due is 2% of the balance. This month&rsquo;s required payment is $100. But next month it&rsquo;ll be a little less, and the next month it&rsquo;ll be even less.</p> <p>If your card charges 18% interest and you pay the declining minimum due each month, it&rsquo;ll take you 472 months to get out of debt. That&rsquo;s over 39 years! Along the way, you&rsquo;ll fork over nearly $13,400 in interest.</p> <p>But if you keep paying $100 each month, you&rsquo;ll be out of debt in &ldquo;just&rdquo; 94 months (less than eight years), and you&rsquo;ll pay about $4,300 in interest.</p> <p>Wow. That&rsquo;s a big improvement for just continuing to pay what&rsquo;s due this month every month.</p> <h2>Ask for a Lower Rate</h2> <p>A huge key to successful negotiating is simply working up the courage to <a href="http://www.wisebread.com/how-to-get-what-you-want-on-customer-service-calls">ask for what you want</a>. If you&rsquo;ve been a good credit card customer, making your payments on time each month, call the company and ask for a lower interest rate.</p> <p>Just say, &ldquo;I believe I&rsquo;ve been a good customer of yours, but I need a <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">better rate</a>. Can you help?&rdquo; It will work to your advantage if you have a better offer in hand that you can mention. Maybe you received an offer in the mail or saw a better rate advertised online. If they balk, ask to speak to a supervisor.</p> <p>Sure, they might say no. But if they say yes, lowering your rate from 18% to 14% in the above example will knock your payoff period down to 76 months and your interest payments down to about $2,500. A nice improvement for a 10-minute phone call.</p> <h2>Pay More Than the Fixed Minimum</h2> <p>Of course, if you can find some money to pay more than the fixed minimum each month, you&rsquo;ll be out of debt even faster. Pay $110 a month instead of $100 in the example above, and you&rsquo;ll shave another 10 months and about $350 in interest from your debt payoff plan.</p> <p>By fixing your payments, asking for a lower interest rate, and paying an extra $10 a month, you&rsquo;ve gone from a payoff period of 472 months and interest payments of nearly $13,400 all the way down to 66 months and less than $2,200 in interest.</p> <p>Of course, the more you can put toward your debts, the faster you&rsquo;ll be out of debt. Run some what-if scenarios with different monthly payment amounts using this <a href="http://www.mattaboutmoney.com/resources/calculators/">Accelerated Debt Payoff Calculator</a>.</p> <p><em>If you&rsquo;ve been there and done that with debt, what other steps did you find helpful in getting out of debt?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/how-to-start-fighting-debt-today">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">The Best Low Interest Rate Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-dont-love-capital-one-how-to-get-a-lower-apr-or-possibly-not">How to Get a Lower APR, or Possibly Not</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0">A Comprehensive Guide to the Debt Snowball Method</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-surprising-ways-to-negatively-affect-your-credit-score">10 Surprising Ways to Negatively Affect Your Credit Score</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management customer service lower interest rate pay down debt Wed, 15 Feb 2012 11:36:21 +0000 Matt Bell 897391 at http://www.wisebread.com The Best Low Interest Rate Credit Cards http://www.wisebread.com/the-best-low-interest-rate-credit-cards <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-best-low-interest-rate-credit-cards" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/young_woman_piggy_bank_000019734047.jpg" alt="Young woman saving money piggy bank" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>The only thing more challenging than managing credit card debt is getting out of it. To accomplish this important goal you need a sound budget, plenty of discipline, and a credit card with the lowest possible interest rate. (See also: <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=seealso">The Best 0% Balance Transfer Cards</a>)</p> <h2>How to Find the Lowest Interest Rates</h2> <p>Every bank is legally required to clearly disclose each card's Annual Percentage Rate, or APR. This is the rate you will see in the black and white box when you click on the &quot;terms and conditions&quot; link.&nbsp;While you might think these disclosures make choosing the lowest APR an easy task, it is not that simple.&nbsp;Most banks will disclose a range of possible rates, with each applicant being offered a particular APR according to his or her credit rating. Therefore, the lowest rates available will be granted only to those applicants with the highest credit scores, with all other cardholders receiving higher rates.</p> <p>Another important aspect of a credit card interest rate is that nearly all of them will have a variable rate. The good news is that the CARD Act of 2009 prevents banks from arbitrarily raising their rates on cardholders in good standing. What you will find is that nearly every card on the market will offer a variable APR that is based on the Prime Rate. This rate, determined in part by the Federal Government, has stood at a record low of 3.25% since December of 2008. Nevertheless, the variable interest rates quoted by the credit card issuers will rise when the Prime Rate does. For example, if the Prime were to rise to 8.25%, as it did in June of 2006, cardholders would see their interest rate rise by 5% from the current rates.</p> <p>Finally, the best interest rates offered for a particular card can vary based on the link you use to apply for it. I have even seen different rates for the same card depending on which browser I used!</p> <h2>The Five Lowest APR Cards on the Market</h2> <p>These cards currently have the lowest interest rates.</p> <h3>BankAmericard&reg; Credit Card</h3> <p><img src="http://www.ftjcfx.com/image-2822544-12945097-1495718827000" class="img-exempt" style="float:right;margin:0 5px 5px 10px;" alt="BankAmericard Credit Card" width="154" height="98" /><a href="http://ct.wisebread.com/click.php?pg=41&amp;pid=16&amp;pp=1&amp;uv=xcard" target="_blank" style="border:none;float:right;clear:right;margin: 0 5px 5px 10px;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/apply-now.png" class="img-exempt img-button" alt="" /></a>The <a href="http://ct.wisebread.com/click.php?pg=41&amp;pid=16&amp;pp=1&amp;uv=xname" target="_blank">BankAmericard&reg; credit card</a> offers a competitive 12.74%-22.74% variable APR on purchases and balance transfers, with a 0% intro APR for 15 billing cycles on purchases as well as on balance transfers made in the first 60 days. There is also $0 Intro balance transfer fee during first 60 days of account opening. After that, the fee for future balance transfers is 3% (min. $10). This no-frills card does not offer any rewards, but it can be a worthwhile tradeoff for people who want a low-interest card in case they have to carry a balance from time to time. <strong>There is no annual fee.</strong></p> <p><a href="http://ct.wisebread.com/click.php?pg=41&amp;pid=16&amp;pp=1&amp;uv=xend" target="_blank"><strong>Click here to learn more and apply for the BankAmericard&reg; Credit Card today!</strong></a></p> <h3>Chase Slate&reg;</h3> <p><img alt="" src="http://www.imgsynergy.com/191x120/chase-slate-060216.png" style="float:right;margin:0 5px 5px 10px;" class="img-exempt" width="154" border="0" /><a style="border:none;float:right;clear:right;margin: 0 5px 5px 10px;" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=39&amp;pp=2&amp;uv= xcardbutton" title="Chase Slate&reg;" alt="Chase Slate&reg;" rel="nofollow" target="_blank"><img alt="" class="img-exempt img-button" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/apply-now.png" /></a>With the <a href="http://ct.wisebread.com/click.php?pg=41&amp;pid=39&amp;pp=2&amp;uv=xname" rel="nofollow" target="_blank">Chase Slate&reg;</a>, you'll enjoy 0% intro APR for 15 months on both purchases and balance transfers, and the intro balance transfer fee is $0 when you transfer a balance during the first 60 days of account opening. After the introductory periods end, a variable APR of 15.74%-24.49% applies on balance transfers and purchases, and there will be a fee of either $5 or 5% of the amount of each transfer, whichever is greater. There is no penalty APR &mdash; paying late won't raise your interest rate. <strong>There is no annual fee, either.</strong></p> <p><strong><a href="http://ct.wisebread.com/click.php?pg=41&amp;pid=39&amp;pp=2&amp;uv=xend" rel="nofollow" target="_blank">Click here to learn more and apply for the Chase Slate&reg; today!</a></strong></p> <h3>Capital One&reg; VentureOne&reg; Rewards Credit Card</h3> <p><img alt="Capital One&reg; VentureOne&reg; Rewards Credit Card" style="float:right;margin:0 5px 5px 10px;" class="img-exempt" src="http://imgsynergy.com/product_creatives/8d827e50e648247b0a6906327928357a.png" width="154" height="98" /><a target="_blank" style="border:none;float:right;clear:right;margin: 0 5px 5px 10px;" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=33&amp;pp=3&amp;uv=xcardbutton"><img alt="" class="img-exempt img-button" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/apply-now.png" /></a>The <a target="_blank" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=33&amp;pp=3&amp;uv=xname">Capital One&reg; VentureOne&reg; Rewards Credit Card</a> offers a 0% intro APR on purchases for 12 months; after that, a variable APR of 12.74%-22.74% applies. Besides a great intro purchase rate, you'll also get unlimited 1.25 miles for every dollar you spend on purchases, which you redeem for travel purchases, statement credit, gift cards, and more. And if you spend $1,000 on purchases within 3 months from account opening you'll earn a one-time 20,000 miles bonus &mdash; that's equal to $200 in travel. <strong>There is no annual fee.</strong></p> <p><a target="_blank" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=33&amp;pp=3&amp;uv=xend"><strong>Click here to learn more and apply for the Capital One&reg; VentureOne&reg; Rewards Credit Card today!</strong></a></p> <h3>Citi Simplicity&reg; Card - No Late Fees Ever</h3> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u784/CitiSimplicityCard-3.29.17.jpg" class="img-exempt" style="float:right;margin:0 5px 5px 10px;" alt="" width="154" border="0" /><a style="border:none;float:right;clear:right;margin: 0 5px 5px 10px;" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=54&amp;pp=4&amp;uv=xcardbutton" target="_blank" rel="nofollow" alt="Citi Simplicity&reg; Credit Card" title="Citi Simplicity&reg; Credit Card"><img alt="" class="img-exempt img-button" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/apply-now.png" /></a>The <a href="http://ct.wisebread.com/click.php?pg=41&amp;pid=54&amp;pp=4&amp;uv=xname" target="_blank" rel="nofollow">Citi Simplicity&reg; Card - No Late Fees Ever</a> offers 0% intro APR on purchases and balances for a whopping 21 months! After the intro period, the variable APR will be 14.49%-24.49%. While there is a balance transfer fee of $5 or 3% of the amount of each transfer (whichever is greater), there are no late fees, no penalty APR, and <strong>no annual fee</strong>. It doesn't get simpler than that.</p> <p><strong><a href="http://ct.wisebread.com/click.php?pg=41&amp;pid=54&amp;pp=4&amp;uv=xend" target="_blank" rel="nofollow">Click here to learn more and apply for the Citi Simplicity&reg; Card - No Late Fees Ever today!</a></strong></p> <h3>Capital One&reg; Quicksilver&reg; Cash Rewards Credit Card</h3> <p><img style="float:right;margin:0 5px 5px 10px;" class="img-exempt" src="http://imgsynergy.com/product_creatives/04dd974af0d2b6d56328b1784af4e507.png" alt="" width="154" border="0" align="right" height="98" /><a style="border:none;float:right;clear:right;margin: 0 5px 5px 10px;" target="_blank" rel="nofollow" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=27&amp;pp=5&amp;uv=xcardbutton"><img alt="" class="img-exempt img-button" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/apply-now.png" /></a>The <a rel="nofollow" target="blank" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=27&amp;pp=5&amp;uv=xname">Capital One&reg; Quicksilver&reg; Cash Rewards Credit Card</a> has 0% intro APR on purchases and balance transfers for 9 months (a 3% fee applies to each balance transferred). After the intro period ends, a variable APR of 13.74%-23.74% kicks in. Besides low interest rates, this card also offers simple rewards: earn unlimited 1.5% cash back on every purchase, every day. Plus, get a one-time $100 cash bonus after you spend $500 on purchases within 3 months from account opening.</p> <p><strong><a rel="nofollow" target="blank" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=27&amp;pp=5&amp;uv=xend">Click here to learn more and apply for the Capital One&reg; Quicksilver&reg; Cash Rewards Credit Card today!</a></strong></p> <h3>BankAmericard Cash Rewards&trade; Credit Card</h3> <p><img alt="" style="float: right; margin: 0px 5px 5px 10px;" class="img-exempt" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/BoA_Cash_Rewards-154.jpg" width="154" border="0" /><a style="border:none;float:right;clear:right;margin: 0 5px 5px 10px;" target="_blank" rel="nofollow" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=17&amp;pp=6&amp;uv=xcardbutton"><img alt="" class="img-exempt img-button" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/apply-now.png" /></a>The <a rel="nofollow" target="_blank" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=17&amp;pp=6&amp;uv=xname">BankAmericard Cash Rewards&trade; credit card</a> has an intro offer of 0% APR on purchases and qualifying balance transfers for 12 billing cycles, then a variable APR of 13.74% - 23.74% applies. You earn 3% cash back for gas, and you earn 2% at grocery stores and wholesale clubs (for the first $2,500 in combined grocery/wholesale club/gas purchases each quarter). <strong>There is no annual fee.</strong></p> <p><a target="_blank" rel="nofollow" href="http://ct.wisebread.com/click.php?pg=41&amp;pid=17&amp;pp=6&amp;uv=xend"><strong>Click here to learn more and apply for the BankAmericard Cash Rewards&trade; Credit Card today!</strong></a></p> <p>Although the best way to use a credit card is to avoid paying interest, most Americans are unable live up to this ideal. If you do have to carry a balance, your primary goal should be finding a card with the lowest interest rate. Doing so will help you to minimize the amount of interest that you owe, making it easier to pay off your credit card debt as soon as possible.</p> <p><a href="http://www.wisebread.com/topic/personal-finance/credit-cards"><strong>Back to Credit Card Offers</strong></a></p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/The%20Best%20Low%20Interest%20Rate%20Credit%20Cards.jpg" alt="The Best Low Interest Rate Credit Cards" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jason-steele">Jason Steele</a> of <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-dont-love-capital-one-how-to-get-a-lower-apr-or-possibly-not">How to Get a Lower APR, or Possibly Not</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-best-credit-cards-with-no-balance-transfer-fees">The Best Credit Cards with No Balance Transfer Fees</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/consumer-reports-picks-top-3-credit-cards-for-your-needs">Consumer Reports Picks Top Credit Cards for Your Needs</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-that-offer-free-credit-scores">The 5 Best Credit Cards That Offer Free Credit Scores</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management best credit cards credit card balance transfers credit card interest rates lower interest rate Fri, 23 Dec 2011 11:36:15 +0000 Jason Steele 828360 at http://www.wisebread.com How low interest rates might save the world http://www.wisebread.com/how-low-interest-rates-might-save-the-world <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-low-interest-rates-might-save-the-world" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/stone-wall.jpg" alt="Stone Wall" title="Stone Wall" class="imagecache imagecache-250w" width="250" height="182" /></a> </div> </div> </div> <p>Low interest rates generally lead to inflation, which is bad for everybody. But if inflation were really low, then low interest rates would tend to follow, and in that situation, low interest rates just might save the world.</p> <h2>Present value</h2> <p>This article is really about present value. (It's about saving the world, too, but first it's about present value.) Present value is the way economists think about the value today of something that you're going to get in the future. Money that you're not going to get for a while is worth less for a whole list of reasons:</p> <ul> <li>You can't spend it now</li> <li>Inflation might make it worth less before you get it</li> <li>There's some risk that whoever is supposed to give it to you won't</li> <li>If you had the money now, you could invest it and earn some return</li> </ul> <p>So, how do you calculate the value today for some money that you're supposed to get in the future? You calculate the present value of the money.</p> <p>The calculation is rather complex. That's not a big deal--any financial calculator and many web sites include a present value calculator--but it's worth understanding the basics of the formula. The gist of it is in that last bullet item there--if you had the money now, you could invest it and earn some return. The formula essentially figures out how much money you'd need to have now in order to be able to invest it and get whatever you've got coming to you later.</p> <p>Let's say some rich uncle died and the lawyers tell you that you can expect to receive $1000 once the estate settles in six months. Further, let's say you could get 5% on the money in your internet savings account. Plug those numbers into a present value calculator (6 months, 5%, and a future value of $1000) and it will tell you that the present value is $975.36. (That interest rate, by the way, is called the discount rate, because it's used to figure the discount of the present value to the future value.) An economist would tell you that you should sell your right to receive that money if anyone would offer you $976 for it. Likewise, if whoever is inheriting the money offers to let that economist have the inheritance in exchange for $975 today, the economist would no doubt jump at the chance to pick up a free 36-cent profit.</p> <p>In the real world, of course, the second-to-last bullet point also comes into play. The 5% that you could earn on the money is all well and good if you've got great confidence in the lawyers, the estate is large, and the will clearly gives you $1000 off the top. But oftentimes things aren't so very clear. Maybe the estate is overly invested in subprime mortgages. Maybe there's an illegitimate son out there with a claim to the whole thing. Anything that adds uncertainty to the payment increases the discount rate.</p> <p>Economists, of course, don't like to dirty their hands with figuring out what the discount rate actually needs to be to account for the fact that there might be another heir out there. Instead, they just tell you to use the &quot;appropriate&quot; discount rate.</p> <h2>Decision-making and present value</h2> <p>To an economist, not having to pay money is the same thing as getting money, so the present value formula lets you answer all sorts of questions about paying money now to save money later.</p> <p>If you can buy a cheap widget today for $100 and have it last 10 years, or you could buy an expensive one for $200 and have it last 20 years, which would you pick? It's not even a toss-up: buy the cheap widget. The cost of the replacement widget ($100, 10 years from now, 5% discount rate) has a present value of only $61.39. If you had the $200 you could buy the cheap widget, invest the $61.39 (which would be worth $100 when the time came to replace your widget), and have the $38.61 to spend or invest in some other way. On the other hand, if the longer-lasting widget only cost $160, that would be the way to go.</p> <p>Of course there's a lot of issues that need to be handwaved away for this to work out so simply: the risk that the cheap widget will fail at a critical time, the risk that the replacement widget might not be so cheap, the value of your time spent widget shopping twice instead of just once, and so on. But the principle is sound.</p> <p>People make these sorts of calculations all the time. Why do roads need to be repaved every 3 years instead of being made to last 20? Because the present value of repaving an extra six times is less than the present value of making a road to last.</p> <h2>Choosing a discount rate</h2> <p>As I said, economists just tell you to choose an appropriate discount rate and leave the dirty work to you. It's a big deal, though, because which rate you chose has huge implications for what makes sense and what doesn't.</p> <p>Suppose the appropriate discount rate were only 2% in the widget example. All of a sudden the right amount to pay for the better widget is $182. On the other hand, if the appropriate rate were 9%, you it wouldn't make sense to buy the better widget unless you could get it for just $142.</p> <p>The main things that factor into the discount rate are the general level of interest rates in the economy (because you could invest whatever money you don't spend now--or alternatively, have to borrow whatever extra you need, which is the same thing to an economist) and any unique risk factors related to this particular transaction (such as the risk that they might not even make widgets ten years from now).</p> <h2>High discount rates in action</h2> <p>Ever see somebody who makes seemly irrational financial decisions, such as borrowing from payday lenders or skipping routine car maintenance that ensures much higher repair bills later? Without speculating on what is actually in the mind of such a person (feeding their family, perhaps), you can model their behavior by treating it as indicating a very high discount rate.</p> <p>When would it make sense to borrow $100 today and have to pay back $115 in two weeks? It makes sense if your discount rate is over 365%. If it is, then $100 today is worth more than $115 in two weeks. Note that it doesn't matter if the borrower is actually making such a calculation--surely almost none of them are. But they're acting as if they were.</p> <p>The effect of high discount rates is to make future results insignificant compared to the present. And the reverse is also true: If the future is insignificant (such as, for example, if you're dying of a terminal illness), then making decisions as if the appropriate discount rate were very high makes a certain kind of sense. So what if spending $30 on your car today could save you a $1400 repair bill next year if the car is sure to be repossessed long before then?</p> <h2>Roofing beams</h2> <p>Now we get to the saving the world part.</p> <p>Here's a story I've heard more than once. Sometimes it's about Cambridge, sometimes it's about Oxford, but either way it goes like this:</p> <blockquote><p>The facilities guy comes to the head of the college and says, &quot;The huge oak beams that hold up the roof in the great hall are almost 400 years old. They're wearing out and need to be replaced. I don't know where we're going to find replacements, and if we do find them, they're going to cost a fortune.&quot;</p> <p>The head of the college gets advice from various people and eventually finds himself talking to the college forester. (Old colleges have odd positions like college forester.) He explains how the oak beams are wearing out and that they're trying to figure out what they can use as a replacement.</p> <p>The college forester, of course, says, &quot;No problem. When they built the great hall 400 years ago, my predecessor planted a grove of oak trees. They should be just about ready.&quot;</p> </blockquote> <p>Now, this is a wonderful story about planning ahead and about the value of continuity--only a really long-lived institution, such as a college, could make such a thing work. It's also about sustainability. It just makes sense to do things this way</p> <p>But think about this story in terms of the discount rate. Suppose 400 years ago beams for the roof cost a total of 1500 pounds sterling (back when a pound was really worth something). Someone doing the net present value calculation at the time, trying to figure out whether to devote the land necessary to grow a whole grove of oak trees to provide replacements, would have found that (at a 5% discount rate) the future value of 1500 pounds in 400 years would only be worth 0.00001 of a pound. In other words, you couldn't even justify the cost of the acorns, let alone the cost of tying up the land for 400 years. If the discount rate were only 2%, the present value of the oak beams 400 years later would be 0.54 of a pound--easily enough to pay for the acorns, anyway. If the discount rate were 1.1%, then the present value would be nearly 20 pounds--very possibly enough to make it worth tying up the land (especially since other trees can be grown alongside oak trees).</p> <p>In other words, sustainable behavior makes economic sense if the discount rate is low enough.</p> <h2>How to get low rates</h2> <p>The government manipulates interest rates all the time. In the US the Federal Reserve raises rates to head off inflation and then cuts them again to protect the financial system from the harm done by high rates.</p> <p>Setting the rates too low produces inflation--and leaving the rates low after inflation has begun to rise makes savings grind to a stop. (If your money is worth less every day, why hold onto more than you need just to transact daily business?)</p> <p>The only way to get lasting low rates is to have very low inflation. During periods when people had great confidence in their money, such as in England and the United States during the gold standard, people made just the sort of long-term decisions I'm talking about. Planting oak trees to be harvested after 400 years is an extreme (and probably apocryphal) example, but there were plenty of real-world examples of investments made and stewardship undertaken that only made economic sense if the discount rate were 2% or less.</p> <p>A few years ago the inflation rate got down close to zero and the Fed panicked. They're much happier with an inflation rate that runs between 1% and 2%, because they worry that they don't have the tools to stop deflation once it starts. The problem with not driving inflation down to zero, though, is that long-term sustainable behaviour will never make sense when interest rates are high.</p> <p>If you're going to get $100 after 50 years it doesn't make sense to invest even $9 today, if the discount rate is 5%. If the discount rate is 2% then you might invest $37, and if the discount rate is 1% then you might invest nearly $61.</p> <p>To make sensible sustainable activity also make economic sense, you need to have very low interest rates. And the only way to get very low interest rates is to have very low inflation.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-low-interest-rates-might-save-the-world">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-game-over">Book review: Game Over</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-techniques-for-sustainable-living">Learn techniques for sustainable living</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-celebrate-earth-day">How to Celebrate Earth Day</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-three-interest-rates">The Three Interest Rates</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-easy-ways-to-start-green-investing">5 Easy Ways to Start Green Investing</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Green Living interest lower interest rate public policy rates sustainability Mon, 03 Sep 2007 11:39:38 +0000 Philip Brewer 1072 at http://www.wisebread.com How to Get a Lower APR, or Possibly Not http://www.wisebread.com/i-dont-love-capital-one-how-to-get-a-lower-apr-or-possibly-not <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/i-dont-love-capital-one-how-to-get-a-lower-apr-or-possibly-not" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/000046276224.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I don't have the best credit history. A few years ago, when I was unemployed for a few months, I had to consolidate a few credit cards. Also, I totally went crazy back in college and rang up some terrible balances paying for <a href="http://www.wisebread.com/can-i-conquer-my-vanity-for-the-sake-of-my-sanity">other people's stuff</a>. Despite this, I always paid off the high balances, and because I've been so responsible since, and because I make a decent income, I have a good credit score, much better than the American average.</p> <p>Despite this, I still pay roughly 17% APR on one of my credit cards.</p> <p>So last Friday, when I heard NPR's Morning Edition giving totally unoriginal advice about how to lower your credit card costs, I thought, <em>I should try that</em>.</p> <p>If you don't feel like listening to the broadcast, I'll give you the gist: <em>Paying a high APR? Why not call the company and ask them to lower your interest rate? They'll probably do it. If they don't, threaten to transfer your balance to another card! Or talk to the manager!</em></p> <p>Lots of people seem to think that you can <a href="http://www.wisebread.com/lower-credit-card-rates-just-ask">get out of debt with mere words</a>. I've actually tried this method before, and they called my bluff.</p> <p>&quot;I'll transer my balance!&quot;, I shrieked to the customer service rep 2 years ago. When I applied for another card, I got rejected. Mind you, I wasn't making much money at the time, but still, maybe the bank has a little note on my file that says &quot;Ignore requests for lower interest rate - she can't get one. Bwahahahaha!&quot;.</p> <p>But, I reasoned, I make good money <em>now</em>. I have a <strong>mortgage</strong>. They will have to respect me. Just to be on the safe side, I applied for a credit card with 0% APR on balance transfers for the first 12 months, and 7.9% thereafter. I only have a couple thousand to pay off, but still, the APR makes a difference to me. And besides, I'd never missed a payment, never been late, and long ago stopped adding to my credit debt. So, they'd be sure to oblige this time, right?</p> <p>Nope. I was informed that &quot;There isn't another interest rate that we can apply to your card&quot; as though 1 and 7 were the only numbers on her keypad, and bygummit, they could only be entered in that exact order. I asked to speak to a manager, and an equally unmovable person got on the line to inform me that there was no way in which my rate could be lowered.</p> <p>&quot;I'll transfer my balance!&quot;, I shrieked, experiencing a keen sense of deja vu. The rep was unconcerned.</p> <p>Sadly, it seems like I'm not alone in my rejection.</p> <p class="blockquote">Negotiating Power Back in 2003, a study by the U.S. Public Interest Research Group, a Washington, D.C., a consumer advocacy group, found that 56% of the consumers who called their credit-card companies to ask for a lower interest rate were able to get it within five minutes. <em><strong>That may not be as easy today</strong></em>, says US PIRG consumer program director Ed Mierzwinski. &quot;They are being much more difficult because they're trying even harder to squeeze the last dollar out of your pocket,&quot; he says. &quot;But if you're a good customer you should understand they don't want to lose you because the cost of acquiring new customers is very high.&quot;</p> <p>I did apply for a new credit card, and was accepted, but then I read this:</p> <p class="blockquote">But be wary of balance transfer fees, which lately have also been on the rise.... While most fees used to be 3% of the transferred balance, up to a cap of $50 to $75, many card issuers have eliminated the cap. So on a $10,000 transfer, you'd be hit with a $300 charge.</p> <p>Also:</p> <p class="blockquote">What's particularly troubling... is that most consumers probably won't realize there's no maximum fee because it's completely absent in the fine print. Up to now, the balance-transfer fee listed in the terms and conditions usually notes a maximum, but in some of the latest offers, there's absolutely no mention of any maximum. And that could mean you may have to pay the entire 3 percent charge. Best advice: Call and ask about all balance-transfer fees, including maximums, before accepting any new card offer.</p> <p>This is important to note: when I applied for my credit card online, there was no immediate or obvious information about transfer fees. What was written was this:</p> <p class="blockquote">We include Transaction Fees when computing finance charges. Incurring Fees results in an APR exceeding 0% for the billing statement on which Fees appear. The Daily Periodic Rate (DPR) will remain 0% as disclosed.</p> <p>Is it just me, or is that wording not exactly straight-forward?</p> <p>Now, I could just pay off the credit card (this may seem logical to people whose brains are not addled by consumer greed and shoe lust). I determined that by paying my minimum payment every month it will take me 43 months to pay off a debt of $2500. If I pay $400 a month (tough, but doable), it will take me 7 months.</p> <p>But even in that case, the bank still gets $300 in interest from me.</p> <p>Anyway, when I called and spoke to my new credit card company this morning, it turns out that my transfer fee for balances would amount to roughly $75. Which is much better than $300. I could then take my sweet time (11 months at $250 a month) to pay off the card, which would be easier to swing than $400 a month.</p> <p>So take THAT! I'm taking $300 out of your coffers and giving $75 to another company! Yes!</p> <p>It is a bitter victory indeed.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-karim">Andrea Karim</a> of <a href="http://www.wisebread.com/i-dont-love-capital-one-how-to-get-a-lower-apr-or-possibly-not">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-dirty-secrets-of-credit-cards">The Dirty Secrets of Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-interest-rates-are-about-to-go-up">Your Interest Rates Are About to Go Up</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">The Best Low Interest Rate Credit Cards</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-best-credit-card-debt-elimination-strategies">The 7 Best Credit Card Debt Elimination Strategies</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-people-with-good-credit-never-do">8 Things People With Good Credit Never Do</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management APR CSR debt lower interest rate Mon, 12 Feb 2007 20:49:06 +0000 Andrea Karim 269 at http://www.wisebread.com